VII. Corporate Profile (Dinodia Capital Advisors)

Executive Summary (1/2)

The Fast Moving Consumer Goods (FMCG) sector in India has been growing at a healthy CAGR of 11% over the last decade Riding on the back of increasing demand and changing consumer preferences, thanks to higher disposable incomes and the retail revolution, the sector has been posting double-digit growth over the past couple of years The industry is volume driven and is characterized by low margins. The products are branded and backed by skilled marketing, heavy advertising, slick packaging and strong distribution networks. Also, raw material prices play an important role in determining the pricing of the final product Modern retail formats too have contributed in a major way in pushing the growth in the FMCG sector. With rising income levels and the spread of modern retail, the FMCG industrys future prospects look bright which is expected to further boost sales

Growth in the sector is led by higher urban and rural demand. Going forward , the governments growing support to agriculture will drive long-term growth in consumption from the rural sectorIn our view, amongst all the FMCG segments, the food segment will outperform over the coming years

Executive Summary (2/2)

The Indian food industry is a significant part of the Indian economy,(food constitutes about 36% of the consumer wallet) The Indian food industry is poised to grow by a whopping 63.5% from Rs 788,100crs now to Rs.1,288,900crs in next 5 years and by 137.8% to Rs. 1,874,100crs in next 10 years, throwing up huge opportunities for investments across the entire value chain1 India faces contrasting problems of having one of the highest malnutrition cases and also being the diabetes capital of the World.In our view, both of these are an opportunities for Food companies. The Health foods segment is likely to see one of the highest growth in the Food segment To exploit this trend many companies have launched health based products viz. Britannia launched Nutrichoice biscuits, Danone launching probiotic yogurt, Dabur introduced a juice with fiber and HUL introduced Soya and multigrain atta, iodized salt, energy drinks We believe that the demand for these products is going to outpace the overall Food Category growth for the years to come

India Food Guide, Edelweiss Feb12

Industry OverviewFast Moving Consumer Goods (FMCG) goods, popularly named as consumer packaged goods, play a vital role as a necessity and as an inelastic product

The Indian FMCG sector is the fourth largest sector the economy with a total market size of Rs. 167,100crs1The market is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen In the last decade the FMCG sector has grown at an average of 11% a year; in the last five years, annual growth accelerated to 17% The FMCG Industry is characterized by a well established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments FMCGs are slowly and gradually positioning and deeply penetrating in the fast growing rural market. The Rural mindset is open to consumption of newer, more contemporary food categories and as a result, drive consistent growth6

Source: 1 Dabur Corporate Presentation March12

Industry OverviewUrban Vs. RuralFMCG Industry Size (in Rs bn) 1,671

FMCG Industry Urban (in Rs bn)

1,111 960

1,451

CY 10

CY 11

CY 10

CY 11

FMCG Industry Rural (in Rs bn)

559 491

The FMCG sector in India continues on a strong growth path with both Urban and Rural India contributing to its growth. Rural India contributes one third of FMCG sales in India

CY 10

CY 11

Growth driven by increasing consumption led by rise in incomes, changing lifestyles and favorable demographics

Source: 1 Dabur Corporate Presentation March12

Industry OverviewRural India accounts for more than 700 Million consumers or 70% of the Indian population and accounts for 40% of the total FMCG market The Rural market is a large market space with very low organized player penetration. Across the globe, the Indian rural market is probably the single largest unit of opportunity

Also with changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80 billion by 2026 in towns with population of up to 10 lakhThe sector has a tremendous opportunity for growth in India, with the growing population, the rising incomes, education and urbanization, the advent of modern retail, and a consumption-driven society

# According to Nielsen, FMCG growth was 10.7% in the rural market and 10.8% in the urban market during the quarter ended December 2011; for the quarter ended March 2012, while growth in the urban market improved to 16.5%, it rose even higher, to 17.2%, in the rural market*Source: *Business Standard May12

Industry OverviewThe following matrix shows the room for growth in various categories of the FMCG products:There is ample room for growth in various categories of FMCG products100% 90% 80% 70%Rural penetration (%)

Bargaining power of consumers: Low

Overall: Moderately Attractive FMCG Industry

Bargaining power of Suppliers: Moderate

Prices are generally governed by international commodity markets, making most FMCG companies price takers

Rivalry

Aggressive marketing strategies among competitors: High Due to the long term relationships with suppliers etc., FMCG companies induce customers to switch More MNCs entering the country negotiate better rates during times of between products high input cost inflation Advertising spends continue to grow and marketing budgets as well as strategies are becoming more aggressive 11

SWOT Analysis Moderate operating costs Presence of established distribution networks in both urban and rural areas Presence of well-known brands in FMCG sector Favorable government policies

Strengths

Weaknesses

Lower scope of investing in technology and achieving economies of scale, especially in small sectors Low exports levels Counterfeit Products Untapped rural market Rising income levels, i.e. increase in purchasing power of consumers Large domestic market- a population of over one billion Export potential High consumer goods spending

Key Challenges Commodity prices fluctuate, which make it difficult to finalize raw material prices, affecting the final price of the product

Price of inputs

Indian consumers are very price-sensitive and value conscious, making it difficult for FMCG firms to pass on the increased costs Private labels serve to lower the consumers price points, particularly at the mass level Conflicts of interest when a retail chain has its own label whose packaging looks like category leaders and stocks brands of other manufacturers, (in terms of display space, promotions etc) These products narrow the scope of FMCG products in rural and semi-urban market The spurious pass off products affect large, high quality brands which have actually invested money in research and development to create their products and build brand equity

Emergence of Private Labels

Counterfeit and Pass-offs

Infrastructural Bottlenecks

Power Costs Transportation Infrastructure Agricultural Infrastructure

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Industry TrendsConsolidation Indian FMCG companies are consolidating their existing business portfolios Several companies have started innovating by launching or customizing their existing product portfolios for new consumer segments Lifestyle and premium range products are the current hot target product segments among Indian FMCG players

Product innovation

Lifestyle products

Expanding horizons

A number of companies are exploring the business potential of overseas markets and several regional markets

Expanding distribution networks

Companies are now focused on improving their distribution networks to expand their reach in rural India15

Industry TrendsThird-party manufacturing FMCG players often outsource manufacturing or processing of a certain range of products to small vendors. This approach has helped companies focus on front-end marketing Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them sustain margins, maintain volumes from price-conscious customers and expand their consumer base Small towns are emerging as significant hiring zones. FMCG companies are hiring field staff from areas such as Kalpa (Himachal Pradesh), Mangaliya (Madhya Pradesh), Kota (Rajasthan), and Shirdi (Maharashtra) to sell diverse products FMCG companies entering Africa as it helps to be close to consumption markets within Africa. Such foreign investments are encouraged by local governments, as they offer incentives to enter the markets

Rising importance of smaller-sized packs

Increased hiring from tier II/III cities

Focus on enhancing presence in Africa Reducing carbon footprint

FMCG players in India are focusing on reducing their carbon footprint. They generate the required energy from renewable sources and earn CER credits for the same16

Growth DriversLarge Market

Spending Pattern

FDI Support

Growth DriversRise of rural consumers

Increasing per capita income of urban population

Growing popularity of organized retail

Changing Profile and Mind Set of Consumer

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Opportunities in the Sector

Untapped Rural Market

The fragmented and untapped huge rural market, which houses 2/3rd of the total Indian population, is vital for the growth of FMCG sector as a whole In order to reduce the marketing costs and raise efficiency through van sales or by creating rural supermarkets, the FMCG companies should join forces in targeting the fragmented and broken rural market

Food-Processing Industry Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low, indicating the untapped market potential With 200 million people expected to shift to processed and packaged food, India needs around US$ 30 billion of investment in the foodprocessing industry

Lack of Infrastructure and storage facilities

Huge shortage of infrastructure facilities and storage facilities in rural areas of the country, which makes its difficult for FMCG companies to market their products Huge investments in developing rural infrastructure and efficient utilization of resources like our coast line, solar energy and vast human resources is imperative for FMCGs overall growth in India 18

Government Policies & Regulatory Framework

Investment Approval: Automatic investment approval up to 100 per cent foreign equity for NRI and overseas corporate bodies. These investments are allowed in food processing segments such as coffee and tea FDI in organized retail: India currently allows 100 per cent FDI in Cash & Carry segment and 51% in single-brand retail, which is expected to be further increased to 100%. India is also expected to allow 51% FDI in multi-brand retail, which will boost the nascent organized retail market in the country Priority Sector: The Government of India recognizes food processing and agro industries as priority sectors Relaxation of license rules: Industrial licenses are not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector Statutory Minimum Price: In October 2009, the government amended the Sugarcane Control Order, 1966, and replaced the Statutory Minimum Price (SMP) of sugarcane with Fair and Remunerative Price (FRP) and the StateAdvised Price (SAP)

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Segment OverviewMarket SegmentsThe food and beverages segment is the highest contributor to the FMCG sector

The FMCG market has three major segments

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Segment OverviewHousehold CareThe detergents segment dominates the household care segment and has been growing at an annual growth rate of 10-11% in the past five years Local and unorganized players account for a major share of the total volume of the detergent market The Household care segment is plagued by intense competition and high level of penetration. With rapid urbanization, emergence of small pack sizes and sachets is picking up

In the washing powder segment, HUL is the leader and other major players like Nirma, Henkel and Proctor & Gamble continue to provide stiff competition/innovation21

The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. The coconut oil market accounts for 72% share in the hair oil marketThe skin care market is at a primary stage in India. With the change in life styles, increase in disposable incomes, greater product choice and availability, people are becoming more alert about personal grooming The oral care market can be segmented into toothpaste 60%; toothpowder 23%; toothbrushes 17%The Indian personal care segment is set to change significantly in the coming years as consumption habits, fuelled by rising disposable income and changing lifestyles, align themselves with global trends. E.g. bath soaps are likely to be replaced by shower gel or liquid soap variants and there will be growing use of hair conditioners and electronic tooth brushes

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Segment OverviewFood and BeveragesThe Food and Beverages segment comprises of the food processing industry, health beverage industry, bread and biscuits, chocolates & confectionery, Mineral Water and ice creams The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks The Indian hot beverage market is dominated by tea and the major share of the tea market is dominated by unorganized players India is one of the fastest growing branded restaurants markets in the world, where the organized eating-out market is currently estimated at US$ 2 billion and growing at a CAGR of 25% Sahara India reportedly plans to enter into dairy production business by opening the world's biggest dairy on April 1, 2013 and could be a serious threat for Anand based Amul

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Investments in the Sector

INVESTMENTS IN THE SECTOR

Recent M&A Deals Recent Private Equity Deals

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Recent M&A Deals

Announced DateDecember 3, 2010

Target

Acquirer

DetailsGCPL has acquired a 100% stake in NC and EC for an undisclosed amount in order to extend its leadership in the specialty liquid detergent category Marico bought an 85% stake in the maker of Vietnam's top malegrooming brand X-Men in a deal estimated at US$55-60mn in order to strengthen the presence in the male grooming space

February 19, 2011

Soft drink and fruit based beverages business along with the brand, 'Fruitnik' from Siva's Soft Drink Pvt Ltd

Amrutanjan With the deal size of US$ Health Care 5.70mn, AHCL diversified its Ltd (AHCL) business into 2 beverages business

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Recent M&A Deals

Announced DateMarch 17, 2011

Target

Acquirer

DetailsJyothy Laboratories acquired a 14.9% stake in Henkel India for US$ 13.20mn in an all-cash deal in order to strengthen its urban distribution network, as Henkel has a strong presence in the modern retail formats

March 28, 2011

SweekarMarico Ltd's brand

With the deal size of US$ 13.04mn, for Marico, the move was in line with its decision to focus on its flagship brand 'Saffola'Jyothy Laboratories Ltd Jyothy Laboratories increased its stake to 50.97% in Henkel India from Henkel AG & Co for US$ 25.80mn

May 6, 2011

Henkel India

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Recent M&A Deals

Announced DateJune 1, 2011

Target

Acquirer

DetailsGodrej Consumer Products Ltd acquired 51% stake in African hair care firm Darling Group Holdings in order to scale up its operations in the region and to strengthen its position in the hair care market

Darling Group Godrej Holdings Consumer Products Ltd

June 6, 2011

VVF LtdAramusk and Moloy brands

Wipro Consumer With the undisclosed deal size, Care Wipros move was to strengthen its position in the increasingly competitive soap market in the country

Recent M&A Deals

DetailsNew York based food company Bunge Limited acquired the edible oils and fats business of Amrit Banaspati Company Limited for US$ 78mn

February 16, 2012

Paras Marico Ltd Pharmaceutical s- personal care business

Henkel India Ltd Jyothy Laboratories Ltd

Marico Limited is acquiring personal care business of Paras Pharmaceuticals from Reckitt Benckiser for an undisclosed amountConsumer goods company Jyothy Laboratories Ltd is merging Henkel India Ltd with itself to consolidate its personal care products business under a single umbrella American Furniture company HNI Corp has acquired 95% stake in office furniture company BP Egro for~ Rs.200 crores

Exec. Director Director

K N Grant A Baijal

Company Overview ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports It is the leading cigarette manufacturer based out of Kolkata with a 67% share of the market by volume and 83% by value The company is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery ITC's Agri-Business is one of India's largest exporters of agricultural products ITC is one of the eight Indian companies to figure in Forbes A-List for 2004, featuring 400 of "the world's best big companies". Forbes has also named ITC among Asia's'Fab 50' and the World's Most Reputable Companies

Company Overview HUL, a 51% subsidiary of Unilever Plc, is the largest Indian FMCG company (excluding cigarettes) based out of Mumbai It has a portfolio of over 50 brands across categories such as soaps, detergents, foods, ice cream and water purifiers The key strengths of the company are an extensive distribution network (its products are available in over 6mn outlets), powerful brands (most of its brands are market leaders and straddle price segments), strong balance sheet, and high-quality management

Pradeep Baijal Rakesh Mohan

Company Overview Nestle, a 62.8% subsidiary of its parent Nestl S.A. of Switzerland, is Indias third largest consumer goods company after HUL and ITC Nestl India manufactures products of truly international quality under internationally famous brand names such as NESCAF, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA Nestle enjoys leadership position in its core categories such as baby foods, instant noodles, and instant coffee It enjoys a distinct advantage over competitors in the F&B space on account of its strong focus on developing products around the nutrition, health, and wellness platform, and a culture of renovation and innovation in its offerings, backed by strong parent support45

Exec. Director Director

P D Narang Mohit Burman

Company Overview Dabur is one of Indias most trusted names and the worlds largest Ayurvedic and Natural Health Care Company and is the second largest FMCG company in India, in terms of Product portfolio Dabur has three divisions in India apart from its international operations : o First, The Consumer care division (CCD) offers a wide range of products in hair care, oral care, health supplements, digestives and candies, and baby and skin care products, based on ayurveda o Second, The consumer health division (CHD) includes overthecounter(OTC) products, Asavs, and branded ethical, and classic products. The CHD division has been merged with CCD to leverage the companies distribution networks o The third, Dabur Foods Ltd produces fruit juices, cooking pastes, sauces, and items for institutional food purchases

Additional Director Additional Director

Tanya Dubash (Ms.) Nisaba Godrej (Ms.)

Godrej Consumer is among the leading FMCG companies in India - second largest player in soaps and largest in hair color Godrej Consumer brands, which include Good knight, Cinthol, Godrej No. 1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy, among others, are household names across the country Major brands include Godrej Hair Dye (liquid and powder), Godrej Kesh Kala oil and Nupur hair dyes in the lower end and Renew and Coloursoft in the higher segment and give stiff competition to foreign brands in the hair colour segment In June 2009, GCPL completed the acquisition of 49% stake in Godrej Sara Lee Limited which had several leading brands such as Good Knight, JET, HIT, Brylcreem and KIWI The company employs 950 people and has three state-of-the-art manufacturing facilities at Malanpur (M.P.), Guwahati (Assam) and Baddi (H.P.)53

Company Overview Colgate, 51% owned by Colgate USA, is the largest oral-care company in India. Supported by a wide distribution network, it derives over 96% revenue from this category The company's 51% stake is owned by the foreign promoters (colgate-palmolive group), around 26% by individuals and around 21% by institutional investors. Colgate has also driven inorganic growth through acquisitions, namely Hindustan CibaGeigy Ltd, CC Health Care Products Pvt Ltd, Professional Oral Care Products Pvt. Ltd., Advanced Oral Care Products and SS Oral Hygiene Prod Colgate Palmolive is a market leader in the toothpaste segment with a market share of ~50% in India, but is seeing increasing competition from domestic players

Nikhil Khatau Anand Kripalu

Company Overview Marico has evolved into one of the leading Indian FMCG companies from a coconut oil manufacturer over the past few years It has positioned itself on the beauty and wellness platform and caters to the hair care, health care, and skin care segments The company operates in India, the Middle East, SAARC countries, Egypt, Malaysia, South Africa, Singapore, and Vietnam and is headquartered in Mumbai, India Its manufacturing facilities are located at Goa, Kanjikode (Kerala), Jalgaon (Maharashtra),Saswad(Maharashtra), Pondicherry, Dehradun (UP) and Daman Marico is present in more than 25 countries across Asia and the African continent

Mukesh H Butani Naresh Dayal

Company Overview GSK Consumer Healthcare Ltd., an Indian group company of GSK plc UK (which holds 43% in GSK), is one of the largest players in the Indian malted food drinks (MFD) industry It is Indias leading health food drinks (HFD) manufacturer (69% market share in HFD) with growing presence in categories such as biscuits, noodles, snacks, sports drinks, glucose powder etc The company has manufacturing facilities in Nabha (Punjab), Rajamundry (Andhra Pradesh) and Sonepat (Haryana) and has a strong marketing and distribution network in India with direct coverage of over 700,000 retail outlets Headquartered in the UK, GSK has over 100,000 employees worldwide, including around 35,000 employees at 85 manufacturing sites in 37 countries65

Avijit Deb Anil K Hirjee

Britannia Industries Limited is based in Kolkata and is famous for its Britannia and Tiger brands of biscuits, which are popular throughout the country With an estimated market share of ~38%, the company's principal activity is to manufacture and sell biscuits, bread, rusk, cakes and dairy products The Britannia brand is the trust of almost one-third of India's one billion population CRISIL has assigned a credit rating to Britannia Industries as AAA rating

The biscuit industry is the largest processed foods segment in India with size exceeding Rs.11,500crs, growing at 13-14% CAGRBritannia has enhanced its premium cream portfolio with a launch of several differentiated products including Bourbon Cappuccino, Pure Magic Praline and a new range of creamy flavours for Treat69

Dinodia Capital Advisors Private Limited

We at Dinodia Capital Advisors believe in building long-term relationships based on trust with our clients, providing the highest quality and timely advice, creating an environment of teamwork, developing deep expertise in our areas of operations, hand-holding clients from start to finish and caring deeply for every match that we make